The first recipients from Nesta’s £25m Impact Investments Fund, co-backed by Big Society Capital, are four for-profit companies working in health, financial inclusion, education and literacy for young people.

The £25m fund, which launched in 2012, is supported by Big Society Capital, which has invested £8m, as well as Nesta and the Omidyar Network. The aim of the fund is to provide risk capital for social ventures which boost the health and wellbeing of an ageing population; the educational attainment and employability of children and young people; and sustainability of communities.

It has today announced its first four social investments, totalling over £2m, into organisations working in these areas - Oomph!; Ffrees Family Finance; Movellas, and Sherston Software (for more information see table below).

Alongside the Nesta fund, other investors have backed the four organisations. Speaking to civilsociety.co.uk, Joe Ludlow, impact investment director at Nesta, said the investors included individuals, grantmakers and some commercial investors.

“In some cases, like Sherston, it was already working with a co-investor,” he said. “But in other cases, like Ffrees Family Finance, we worked with the company quite a bit in talking with other investors, and encouraging them to participate with us.”

Ludlow would not disclose the names of other investors, but did say the Big Lottery Fund and UnLtd had also co-invested in Oomph, as part of their Big Venture Challenge.

Ludlow said commercial investors were making investments on the basis that they “had the potential to perform as well as anything in their portfolio”. But he added that as they were investing along Nesta, they had to be comfortable with its requirements on impact.

He said other investors had invested to “have the chance to have a strong social impact”.

Future investments in charities expected

Nesta’s first investments are equity investments expected to run for around eight years. After this Nesta expects to be able to sell its shares to a trade buyer or larger organisation which runs the services or offers products in the field of the organisation it backs, Ludlow said.

He added: “If you think about the themes of our fund such as ageing or children – there are lots of changes happening in these areas in terms of public service delivery, so there is an opportunity for small, innovative companies, to get going and try something out. But over time you would expect each of these areas to settle down – and a larger organisation to partner, if not buy them.”

Ludlow said none of Nesta's four first investees had an asset lock, but he said that Nesta had made sure that all had a strong impact focus built into their constitution, governance structure and the legal documents which support it. He said he expected to see charities and CICs become part of its investment portfolio in the future.

“Our fund is about where we can deploy capital into innovations that are likely to make the most impact first and foremost,” he said. “And in the areas where we are working, charities and CICs play a huge role, so I would expect the portfolio to be balanced alongside some private companies, some charities and some social enterprises going forward.”

Charities nervous about social investment

But Ludlow also said that he had been surprised that Nesta's impact fund had heard from a lot fewer charities than private companies over the past year: “I have been working in social investment, primarily with charities, for eight years, so I know that there are charities out there in these areas,” he said.

He suggested the lack of interest could reflect a continuing fear of social investment among charities. “I know that charities continue to be nervous, potentially confused, by what social investment is and how it is going to help them," he said.

“I think the more social investors can give real examples, the more charities will understand what it is about and decide whether it is for them or not.”

Ludlow said charities and social enterprises could get investment from its fund through its revenue-sharing scheme, where an organisation provides Nesta’s fund with a share of revenues in return for the investment.

Nesta’s first four investments are:

• Oomph! – an award winning social enterprise improving the health and quality of life of older adults in care homes through innovative group exercise classes, such as  ‘chair cheerleading’ - £200,000
• Ffrees Family Finance – a unique type of current account that helps families to save as they spend  - £700,000
• Movellas - a new online story sharing community aimed at improving literacy skills amongst teenager - £175,000
• Sherston Software – a company developing innovative educational software designed to motivate children and boost their education performance - £750,000